Euro to AUD Exchange Rate Stronger before Inflation Data

The Euro began a fresh week of trading in a stronger position against the Australian Dollar as last week’s developments continued to weigh on the South Pacific asset.

On Friday the AUD posted five-day declines against several of its most traded currency counterparts after sliding during the week as a result of disappointing Chinese manufacturing figures and below forecast Australian inflation data.

Ukraine-inspired tensions also kept the pressure on higher-risk assets.

According to market strategist Imre Speizer; ‘The Australian Dollar fell because Ukraine remained tense and there was the prospect of sanctions being imposed by Europe and the US. Standard and Poor’s also downgraded Russia because of the capital outflows that the Ukraine situation is causing.’

The Euro, on the other hand, advanced modestly in response to surprisingly upbeat German/Eurozone manufacturing and services PMI and better-than-expected German business confidence reports.

A lack of Australian data limited Australian Dollar movement and the currency was holding steady against peers like the US Dollar, Pound and Euro.

However, with a stream of influential economic reports scheduled for publication over the course of the week, extensive currency market volatility can be expected.

The week’s most important Australian reports include the AiG performance of manufacturing index and new home sales data.

China’s manufacturing PMI (due out on Thursday) could also have a considerable impact.

In the Eurozone, meanwhile, investors will be focusing on German and Eurozone inflation figures, Eurozone economic confidence, German retail sales, German unemployment and Markit PMI.

The big news will be the inflation data, as a lower-than-forecast result could push the European Central Bank into introducing additional stimulus.

Economists expect consumer prices in the currency bloc to have risen by 0.8 per cent in April from the same period of 2013.

However, while this report could prove to be a big market mover, the US non-farm payrolls report (out on Friday) is also one to watch.

In the opinion of economist Adam Boyton; ‘Non-farm payrolls are the key event of the week and I think if we get a strong reading, it could well be the growth sensitive currencies that benefit the most, not the US Dollar, particularly if the Fed this week reaffirms a relatively dovish stance. The Fed have flagged pretty clearly they are going to continue tapering at the current pace and any prospect of a higher Fed funds rate remains some distance away, with the Fed’s forward guidance de-emphasising any particular unemployment rate trigger.’

The US unemployment rate is expected to have dipped from 6.7 per cent to 6.6 per cent with the nation’s economy adding 210,000 positions in April.